Barbara Boland opened a flower shop Business has been

good #6582
Barbara Boland opened a flower shop Business has been good

Barbara Boland opened a flower shop. Business has been good, and Boland is considering
expanding with a second shop. A cousin has produced the following financial statements at
December 31, 2017, the end of the first three months of operations:

Barbara Boland Blossoms Inc.

Income Statement

Quarter Ended December 31, 2017

Sales revenue............................................ $36,000

Share capital............................................... 10,000

Total revenue.............................................46,000

Advertising expense.......................................8,000

Accounts payable.........................................5,000

Rent expense..............................................6,000

Total expenses...........................................19,000

Net income.............................................$ 27,000

Barbara Boland Blossoms Inc.

Balance Sheet

As at December 31, 2017

Assets..............................................$ 6,000

Cash................................................ 22,000

Cost of goods sold (expense).................... 5,000

Store fixtures......................................10,000
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 Flower inventory...............................$ 43,000

Total assets................................................

Liabilities.................................................

None.......................................................

Owners' Equity ............................... $ 43,000

In these financial statements, all amounts are correct except for Owners' Equity. Boland's
cousin heard that total assets should equal total liabilities plus owners' equity, so he plugged in
the amount of owners' equity at $43,000 to make the balance sheet come out evenly.

Requirements

Barbara Boland has asked whether she should expand the business. Her banker says Boland
may be wise to expand if

(a) Net income for the first quarter reaches $5,000 and

(b) Total assets are at least $25,000. It appears that the business has reached these
milestones, but Boland doubts her cousin's understanding of accounting. Boland needs your
help in making this decision. Prepare a corrected income statement and balance sheet.
(Remember that Retained Earnings, which was omitted from the balance sheet, should equal
net income for the period; there were no dividends.) After preparing the statements, give Boland
your recommendation as to whether she should expand the flower shop.

Barbara Boland opened a flower shop Business has been good

ANSWER
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